Question #59632

Quota. Determine the SWL.
D: P = 840 - 3Q
S: P = 240 + 3Q
Quota: Q = 80.

Expert's answer

D: P = 840 - 3Q

S: P = 240 + 3Q

In equilibrium quantity demanded equals quantity supplied at equilibrium price, so:

840 - 3Q = 240 + 3Q,

6Q = 600,

Q = 100 units.

P = 840 - 3*100 = $540.

If there is a quota of Q = 80, then the price of demand is: P = 840 - 3*80 = $600,

the price of supply is: P = 240 + 3*80 = $480.

So, the deadweight loss is: DWL = 0.5*(600 - 480)*(100 - 80) = $1200.

S: P = 240 + 3Q

In equilibrium quantity demanded equals quantity supplied at equilibrium price, so:

840 - 3Q = 240 + 3Q,

6Q = 600,

Q = 100 units.

P = 840 - 3*100 = $540.

If there is a quota of Q = 80, then the price of demand is: P = 840 - 3*80 = $600,

the price of supply is: P = 240 + 3*80 = $480.

So, the deadweight loss is: DWL = 0.5*(600 - 480)*(100 - 80) = $1200.

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